The Pros and Cons of Having a Business Debit Card | Fora Financial Blog
The Pros and Cons of Having a Debit Card for Your Business
July 19, 2018

The Pros and Cons of Having a Debit Card for Your Business

Operating on a cash-only basis can be risky when setting up your own business. If you have a business checking account, a debit card offers a convenient and simpler way to pay for everyday purchases while reducing the amount of cash you need to keep on hand. However, debit cards have their limitations, and you may find that a different solution is more appropriate. When deciding whether a debit card is the best option for your business, first consider some of the pros and cons.

Pros of a Business Debit Card:

1. It’s Convenient

Since most merchants accept debit cards, you typically don’t have to worry about having a backup payment method. Using a debit card is as simple as swiping it and entering your personal identification number (PIN). The money is then deducted from your checking or savings account. You also have the added convenience of getting cash back when you need it –either after completing a transaction with a merchant or by using your debit card at an ATM.

2. It Keeps You on a Budget

Unlike a credit card, which allows you to borrow and spend money you might not have, a debit card limits your spending to what’s in your checking or savings account. While you may be charged a fee if you accidentally overdraw your account, you’ll avoid the high interest rates and late payment fees that credit card companies charge if you overspend and can’t make your payments.

3. It’s Easy to Get

With a business credit card, you may have to go through an extensive application process that includes a credit check and proving your earnings history. On the other hand, most banks or credit unions will offer you a debit card when you open your business checking or savings account, even if you have questionable credit or no credit history at all.

Cons of a Business Debit Card:

1. It Won’t Boost  Your Credit Score

When you borrow money, you build good credit by keeping your debt usage low and making all your payments on time. However, since a debit card only gives you access to money you already have, using it doesn’t impact your credit score. While this may not seem like a bad thing, you’ll need to find other ways to build your credit history to eventually qualify for a business credit card or loan.

2. You’re Limited to What’s in Your Account

If you need to make a large transaction and your account balance is low, your debit card won’t be very helpful. Unlike credit cards or lines of credit that can give you access to financing when your cash flow dips, debit cards limit your spending to your available cash balance. In other words, you may need an alternate source of funds.

3. It Offers Less Protection than a Credit Card

If someone steals your credit card, you can simply dispute any unauthorized purchases and get a new card. However, because money is immediately deducted from your account when someone uses your debit card, unauthorized transactions put your funds directly at risk. According to FICO, the number of debit cards that were compromised at ATMs and merchant card readers rose by 70 percent between 2015 and 2016 – and that number rose another 39 percent through the first half of 2017. Due to this, if you have a debit card, you should keep your card number and PIN safe at all times.

Is a Debit Card Right for Your Business?

You have many options for how to manage your cash flow and spending when starting your own business, including debit cards, credit cards, cash, and newer forms of electronic payments like mobile wallets. While debit cards are convenient, easy to qualify for, and can help you avoid going into debt, they also offer fewer protections than credit cards and won’t help you build good credit. Ultimately, it’s important to weigh all your options and the pros and cons of each option before deciding what’s best for your business.

Fora Financial

Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.

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Fora Financial is a working capital provider to small business owners nationwide. In addition, the Fora Financial team provides educational information to the small business community through their blog, which covers topics such as business financing, marketing, technology, and much more. If you’d like to see a topic covered on the Fora Financial blog, or want to submit a guest post, please email us at [email protected].